Asset Purchase
Agreements.
In an asset purchase, you buy specific assets and liabilities of a business — not the entity itself. This structure offers significant tax advantages and liability protection for buyers. Our AI Legal Nerds guide you through every component of a well-structured asset purchase agreement.
Asset Purchase vs Stock Purchase
The choice between an asset purchase and a stock purchase is one of the most important decisions in any M&A transaction — with major tax, liability, and operational implications for both parties.
Asset Purchase — Buyer Perspective
- ✓Step-up in tax basis — depreciable assets get new, higher basis reducing future taxes
- ✓Cherry-pick which assets and liabilities to acquire
- ✓Generally avoid predecessor liability for unknown claims
- ✓Avoid inheriting the seller's employment, environmental, and litigation history
- ✓More complex to transfer — contracts, licenses, and permits may require consent
- ✓Preferred structure for most small and mid-market deals
Stock Purchase — Seller Perspective
- ✓Simpler transfer — entire entity transfers with all contracts and relationships intact
- ✓Capital gains tax treatment on proceeds — generally more favorable for sellers
- ✓No need to obtain third-party consents for contract transfers
- ✓Buyer inherits all liabilities — known and unknown
- ✓Seller achieves clean exit — no ongoing indemnification exposure for asset transfers
- ✓Preferred by sellers in most situations
Key Components of an Asset Purchase Agreement
Schedule of Acquired Assets
A precise schedule identifying every asset being purchased — equipment, inventory, intellectual property, customer lists, contracts, real estate, and goodwill. Clarity here prevents post-closing disputes about what was and was not included.
Assumed Liabilities
Equally important as assets — a specific list of which liabilities the buyer is assuming. Anything not explicitly listed remains with the seller. This is where buyers get the most protection in an asset deal.
Purchase Price and Allocation
The total consideration and how it is allocated among asset classes. IRS Form 8594 requires both parties to allocate consistently. Allocation affects depreciation, amortization, and capital gains treatment for both sides.
Representations and Warranties
Seller's factual statements about the business — financial condition, contracts, litigation, employees, environmental compliance, IP ownership. These form the basis for indemnification claims if false.
Indemnification Provisions
Who pays when something goes wrong post-closing. Basket amounts, caps, survival periods, and escrow arrangements determine the practical value of seller representations. This section requires careful negotiation.
Closing Conditions and Covenants
What must happen before closing — regulatory approvals, third-party consents, financing, due diligence satisfaction. Covenants govern how the seller operates the business between signing and closing.
The Asset Purchase Process
Letter of Intent
Non-binding agreement outlining the key terms — price, structure, exclusivity period, and timeline. Sets the framework for the definitive agreement.
Due Diligence
Comprehensive investigation of the target business — financial, legal, operational, and tax. Our AI helps you organize findings and identify deal-killers.
Purchase Agreement
Negotiation and drafting of the definitive asset purchase agreement — the most critical document in the transaction.
Closing
Execution of closing documents, transfer of assets, and payment of purchase price. Our AI helps you prepare a closing checklist and track every deliverable.
Structure your deal for maximum protection
Asset purchases are complex transactions with major tax and liability implications. Get expert AI guidance before you sign anything.